Monday, September 17, 2007


That nasty Paul Krugman is at it again, poking former Fed Reserve chairman Alan Greenspan with a sharp stick. Greenspan, like so many US Generals, has taken the opportunity of his retirement to write a book criticizing the Bush regime - criticisms they all carefully kept to themselves back when they might have done some real good.

Krugman has for years criticized Greenspsan for kowtowing to the Bush administration over its tax cuts and deficit ways. In today's New York Times, he gleefully castigates Greenspan for his "moral collapse" that began in 2001 and continued until his recent retirement. Greenspan has a little problem with his credibility - it's called "facts."

Meanwhile, Asia Times Online, has published an interesting article that suggests the current subprime mortgage meltdown is the result of our governments deliberately lying to us. Richard Daughty is general partner and COO for Smith Consultant Group wrote the following:

Robert Hardaway, who is a professor of law at the University of Denver Sturm College of Law, tells how this started. He relates, "In 1983, the Bureau of Labor Statistics [BLS] was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15%, thereby making the country's economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2% real return after inflation, that would mean that bond and money market yields could climb as high as 17%."

Yikes! What to do, what to do, what to do whattodowhattodo? "The BLS's solution was as simple as it was shocking: exclude the cost of housing as a component in the CPI, and substitute a so-called 'Owner Equivalent Rent' component based on what a homeowner might 'rent' his house for." Hahaha! The government resorts to lying! "Wow! Why didn't we think of this before?" they are heard to ask among themselves.

Fortunately for the government, it worked. "The result of this statistical sleight of hand was immediate and gratifying," Mr Hardaway writes, "for the reported inflation index quickly dropped to 2%", down from the real, and horrifying, 15% which was due "in part" to the drop in rents caused by speculators wanting to "offset their holding costs by renting out their homes while their prices skyrocketed, thereby flooding the market with rentals that pushed down the cost of renting a house or apartment." Hahaha!

You can almost hear the contempt in his voice when he says, "While the BLS was correct in assuming that this statistical ruse would fool the average citizen into believing that inflation was only 2% (and therefore be willing to accept a meager 4% return on his bank savings), what is remarkable is that the ruse also fooled the bond traders, and apparently continues to do so, leading analyst Peter Schiff to describe these supposed savvy bond traders as the 'hormonal teenagers of the capital markets'."

Putting it all together, he concludes, "The present subprime credit crisis can be directly traced back to the BLS decision to exclude the price of housing from the CPI. It is now clear that the 'benign' inflation figures reported over the last 10 years" were, (using my awesome editorial powers to insert my own words for special emphasis), "A big stinking load of lying crap by the corrupt Federal Reserve and the despicable government (except Ron Paul)." 1

In essence, the claim is that we've been living in seriously inflationary times for years now while we avoided taking the only effective remedy - higher interest rates. By dodging realistic interest rates it became possible to get rich (at least in the US) by making mortgage loans to unqualified buyers, fueling the ongoing but unsustainable housing bubble.


Oldschool said...

Krugman, like his employer the NYT are usually a day late and a nickle short.
The US has had many positive years. Whle Krugman has been singing doom and gloom. So now things slow down a bit, and Krugman is right . . . . nuts!!!
The sub-prime mortgage thing is a problem, but, it also a problem in Britain, in Germany where a couple of banks have closed. The lower US dollar will sure help the Euro crowd . . . what will a Bimmer or Benz cost in the US in 08? Meanwhile US goods get cheaper. The US manufacturing segment still dwarfs the chinese economy.
Of course here in Canada, manufacturing struggles . . . thanks to decades of liberal over-taxation and neglect.

Oldschool said...

Latest comment on US economy by Greenspan . . . . he's just a bit brighter than the Krug....

Greenspan: U.S. Not Headed for Recession

Monday, Sept. 17, 2007
WASHINGTON -- Former Federal Reserve Chairman Alan Greenspan said on Monday the United States appears set to weather the bursting of a housing bubble without falling into recession.

"The evidence so far, is not yet. The economy at this stage, despite this fiscal problem, despite the financial problem, is still holding up," he told NBC's "Today" program.

His comments come a day before the U.S. central bank is widely expected to lower benchmark federal funds interest rates, now at 5.25 percent, by at least a quarter-percentage point to help the economy weather a housing downturn and a credit crunch.

Greenspan said he expects there to be more mortgage delinquencies and home foreclosures in store in U.S. and global housing markets.

"I think we're going to have to go through this adjustment, as indeed all the other countries are in the process of going through it. There are going to be a lot of people who will have very tragic stories," he said.

Greenspan stepped down as head of the Fed in January 2006 after more than 18 years at the helm of the U.S. central bank. His book is called, "The Age of Turbulence: Adventures in a New World."

The memoir has already drawn attention for the comment the Iraq war is "largely about oil." He said on Monday his comments should not be seen as questioning President George W. Bush's emphasis on Saddam Hussein's arsenal as the justification for invading.

"I'm not saying that they believed it was about oil. I'm saying, it is about oil and that I believe it was necessary to get Saddam out," he said.

The former Fed chairman has also come under fire for writing he was surprised that his support of tax cuts early in the Bush administration would be embraced, but his simultaneous recommendation of fiscal restraint was ignored.

The Mound of Sound said...

OS, you're as ill informed as you are - well, boring. Greenspan has played this both ways since Bush jr. got elected. He's complaining now about the tax cut-fueled deficits but he was a booster of those same tax cuts when his newfound prudence was needed. Get your facts straight and you might have something useful to add.